On the Money

How Boxed got started after its founder was annoyed at paying $7 for a box of Cheerios

Outside the Box

A $7 box of Cheerios was the impetus behind the launch of an online retailer.

When Boxed CEO Chieh Huang was growing up in suburban New Jersey, going to Costco forerunner Price Club was a family ritual.

"Every other weekend, I'd go with my parents and stock up, " he tells CNBC's On The Money in an interview.

Years later, grown up and working in Manhattan, he was annoyed at having to pay expensive city prices for a simple box of cereal.

"I didn't have a car to go to a warehouse club. I felt, maybe millions of other Americans might have this problem. "

The solution he created was Boxed. Three and a half years ago, Boxed was launched with only 200 items in Huang's garage, as a mobile version of a warehouse club—kind of a Costco-meets-Amazon, aimed at millennials.

But Huang says the demand has expanded well beyond millennials, as customers come to them from rural areas too.

"As ubiquitous as the brands of the warehouse clubs are, Costco, BJ's and Sam's, they're not everywhere. If you have less than a million people in your town, or less than 500K, you might never get access to wholesale savings. So we help folks with that."

Unlike most warehouse club stores, Boxed doesn't charge any membership fee. It also offers free shipping for orders over $49, and nearly all customers get shipments within two days, while half get them overnight. The company has four fulfillment centers: in New Jersey, Atlanta, Dallas and Las Vegas.

According to Fung Global Retail, the warehouse club sector is expected to generate $191 billion in revenues in 2017.

But according to Huang, mobile sales for all these competitors total "about zero. In just three years we've reached $100M in sales."

While a warehouse club like Costco sells about 4,000 items, Boxed carries only about 1,600 items. "We generally only carry one to three items per category."

Huang says that brings "competitive tension" from manufacturers "who pitch to us and want to take one of the slots".

"At the end of the day if you're a manufacturer, if we're not getting a good price, or it's not a great product, we just won't carry it because we're not the everything store. "

By the way, today, Boxed sells two large 20 oz. boxes of Cheerios for $6.79.

Clarification: Boxed offers free shipping for orders over $49.

On the Money airs on CNBC Saturday at 5:30 am ET, or check listings for air times in local markets.